Sector allocation most popular approach in Asia

Asia-Pacific investors’ three top methods of asset allocation are by sector, globally and regionally, in that order, according to an investor survey conducted this month by Dutch fund manager Robeco and AsianInvestor.

Of 216 respondents, 45% said sector allocation is applicable to their asset-allocation strategy, 44% said global allocation and 42% said regional asset allocation. The next most popular choice was thematic allocation, with 32%.

It comes as a surprise that sector allocation is the most popular choice, says Henk Grootveld, co-portfolio manager of Rolinco, which invests in thematic equity strategies offered by both Robeco and SAM.

“From what I understand, sector allocation is becoming less popular than regional or thematic allocations,” he says, largely for reasons of diversification. “Say you’re invested in the oil sector and European governments decide to impose more taxes on oil producers – European oil-producer stocks will fall simply because they're European.”

“So I would say one should look at the regional allocation first – to remove the political uncertainty – and then go into themes or sectors,” argues Grootveld.

As for thematic allocation, he says it is very early days for this approach, but he would expect it to be more popular in five years’ time, given that it’s a logical, simple and understandable way of investing.

“Take Apple, which is an IT company, but it’s [products are] bought by consumers,” he says. “It’s a judgement call by index providers as to which sector they put a company in."

He points out that firms as diverse as Apple and Indian telecoms company Bharti both sell to consumers, but are in different sectors. “By playing the consumer theme, you remove the judgment call about which stocks are in which sectors – it's a more logical and simpler approach.”

Meanwhile, a significant proportion of investors (27%) said single-country allocation is applicable to their allocation strategy. Grootveld says that figure would be lower if the survey had been conducted in, say, Europe. That’s because Asian countries are more fragmented in terms of currencies, regulations and so on, whereas Europe is increasingly becoming one market.

*The survey of fund managers and institutional investors was conducted in conjunction with AsianInvestor in early October. The full results and write-up will appear in the upcoming November issue of the magazine.